A successful retirement hinges upon whether an individual is collecting enough income to cover their expenses.
And since Social Security retirement benefits only replace approximately 40% of the average worker's pre-retirement income, most will have to self-fund at least part of their retirement. One of the most common ways to do so is through dividend income.
Here are two ultra-high-yielding dividend stocks with safe payouts that could help bridge the gap between Social Security income and living expenses for retirees.
1. T. Rowe Price
As of July 31, T. Rowe Price (TROW 0.11%) was among the largest money managers in the world, with $1.39 trillion in assets under management (AUM). Due to the decline in financial markets, this is down considerably from the company's peak AUM figure of $1.69 trillion at the end of last year. However, it's still significantly higher than the $903.6 billion AUM figure from the second quarter of 2017.
T. Rowe Price's investment advisory fees accounted for 93.6% of its total net revenue in the first half of 2022. And since these fees are tied to its AUM, the company's total net revenue dipped 10% year over year to $3.4 billion for the first half of the year. T. Rowe Price's first-half non-GAAP (adjusted) diluted earnings per share (EPS) tumbled even further -- down 41.5% over the year-ago period to $3.88.
These results explain why shares of T. Rowe Price have plunged 34% year to date, which has pushed the dividend yield up to 3.8%. For context, this is more than double the S&P 500 index's 1.5% yield. Yet the company's dividend appears to be quite reliable for two reasons.
For one, analysts believe that the economy will grow over the medium term. This probably will to push up equity prices. And it will also have the impact of propelling T. Rowe Price's revenue upward and its adjusted diluted EPS higher by 12.6% annually over the next five years. Secondly, the company's projected dividend payout ratio of 51.4% for this year is manageable.
T. Rowe Price's valuation seals the deal to make it a smart buy for investors seeking sustainable income. At the recent $129 share price, T. Rowe Price's forward price-to-earnings (P/E) ratio is about 15. This is close to the asset-management industry's average of 14.1. Investing $143,000 in T. Rowe Price would purchase 1,109 shares of the stock, which would generate $1,330 in quarterly dividend income. But since dividend investing is a strategy that can scale up or down, you can invest however much you have available and begin building a stream of passive income.
2. Prudential Financial
With $1.41 trillion in AUM as of June 30, Prudential Financial (PRU -0.90%) is another large asset manager. This AUM figure is meaningfully lower than the peak of $1.74 trillion at the end of 2021, though it's still marginally higher than the $1.33 trillion from five years ago.
But unlike T. Rowe Price, Prudential also offers life and disability insurance to its customers. Thanks to rising financial obligations for families, life and disability insurance should remain in high demand. Along with the expectation of climbing equity markets over time, this should lead the company's earnings higher.
Prudential also provides income investors with a whopping, secure 4.9% dividend yield. That's because the company's dividend payout ratio is poised to be 47.2% in 2022. This leaves plenty of room to cover the dividend and continue raising it each year.
Best of all, Prudential is trading at a forward P/E ratio of 9.4. This is moderately below the life insurance industry's average forward P/E ratio of 11.5, which suggests that the stock is a bargain. And investors with $143,000 set aside could purchase 1,388 shares of the stock, which would produce $1,666 in quarterly dividend income.